The 13,000-member Arizona Police Association has called for a criminal investigation into whether the Public Safety Personnel Retirement System improperly reported the values of some real-estate assets in an annual report in order to improve the bottom line.

The association, whose members are beneficiaries of the underfunded public-safety pension plan, last month asked the Arizona Attorney General’s Office to launch the probe in a letter to the criminal-division chief.

“There is a cloud of smoke ascending from PSPRS. Only a criminal investigation will reveal what the source of the smoke is,” wrote Levi Bolton, the police association’s executive director.

In an interview, Bolton said the association became concerned about the trust’s financial dealings following reports in The Arizona Republic and other media outlets as to whether the retirement system accurately stated the values of its real-estate portfolio managed by Scottsdale-based Desert Troon Cos. in fiscal 2012 annual reports.

The Attorney General’s Office, citing a conflict because it represents the retirement system, sent the request for a probe to Maricopa County Attorney Bill Montgomery.

Jerry Cobb, a spokesman for Montgomery, declined to comment on whether an investigation will occur.

Jared Smout, the trust’s deputy administrator, said all citizens are entitled to ask for an investigation and “PSPRS will cooperate fully in any inquiry that might ensue.”

Four senior-level employees have quit since late May after they questioned whether the trust’s management inflated the value of those real-estate assets, which are primarily in metro Phoenix. The trust is significantly underfunded because of prior investment losses, and it has relied heavily upon taxpayer-funded contributions from local governments in the past few years to offset those losses.

Bolton, in his letter, said only a criminal investigation with subpoena power would allow those who quit “the forum to pull back the curtain and show us, the beneficiaries of the trust, what is really going on.”

One key concern of the former employees was whether the inflated values would enhance staff bonuses. That issue, however, became moot last week when the trust board voted to suspend the bonus program because of the controversy and negative political attention from the payouts. The suspension saved taxpayers $207,854, the amount budgeted this fiscal year for bonuses.

Smout, in an e-mail to The Republic, said the trust has been forced to waste time and taxpayer money to “defend these spurious claims made by previous staff whose only agenda is personal.” He said they were “using this valuation issue as a vehicle to mask” their agenda.

The Republic published stories on the Desert Troon land valuations and investment bonuses in August, after the trust in mid-July called upon the state auditor general for guidance in financial reporting.

At issue was whether it was “reasonable” for trust managers to report higher asset values supplied by Desert Troon instead of more conservative values supplied by independent appraiser Ernst & Young.

That request came after two portfolio managers and the trust’s chief investment counsel resigned. A third manager has since quit. Prior to the resignations, there were 10 people on the investment team.

The Auditor General’s Office on Monday did not return a call regarding the status of its inquiry.

Desert Troon manages a portfolio of retail, residential and commercial real-estate properties for the trust and was paid at least $12 million in fees in 2012, according to trust records. The company did not return a call or e-mail seeking comment Monday.

Using the higher real-estate values boosted the trust’s bottom line in fiscal 2012 by roughly $90 million, although the trust still reported a $54.6 million loss that year.

The trust this year again is considering reporting higher property values quoted by Desert Troon, rather than lower valuations recommended by Ernst & Young, according to trust administrator Jim Hacking. The difference in those values is $82 million.

Smout said that “PSPRS has been most forthcoming and transparent about the way it has valued its real-estate portfolios,” and he added that Desert Troon sold some trust properties in 2011 and 2012 that surpassed even the higher reported land values.

“We expect future sales will continue this trend, which will only benefit the trust and its membership and should put to rest any concerns of inappropriate valuation practices,” Smout said.

The trust has done business with Desert Troon since the mid-1990s. Properties currently under its management are located primarily in metro Phoenix, though a few are in Utah, Colorado and Texas, according to trust records.

Assets under Desert Troon’s control have suffered significant losses for the trust since fiscal 2009, records compiled by The Republic show.

The trust’s collective losses from properties managed by Desert Troon from fiscal 2009 to 2012 were at least $284 million, according to reports compiled by The Republic.

— Since this article was published on September 30, 2013, the Arizona Auditor General required that PSPRS make real estate valuation changes resulting in additional write-downs.